An Equity Trading (not investment) blog for beginners. The purpose of this blog is to provide a platform to discuss how to improve equity trading. Feel free to comment and chip in your input.
Monday, December 19, 2011
KIMB Disposal
1. Jerneh Ins sold to ACE - 2.24 times BV
2. Berjaya Sampoe Ins sold to Japanese - 3.3 times BV
3. Pacific Ins sold to Fairfax - 1.5 times BV
4. MAA Ins sold to Zurich - 1.35 times BV
KIMB being the biggest motor insurer should command a BV above 2x based on the recent transaction. The speculated price of 2.5x to 3x is fair. Motor insurance business is a tariff business where the premium charged is controlled by BNM. The premium rate has been not raised for a very long time. The emergence of buyer at 2.5 x BV is an indication that the motor insurance premium is going up soon.
A quick analysis of potential upside for short term gain:
There is a potential speculative upside of another 50% or 30sen/share. Good luck.
Monday, December 12, 2011
Another important person to follow: Jean-Michel Six
Dec 12 (Reuters) - The European Union will need more summits to resolve its debt turmoil and time is running out, although last week's deal was a significant step in resolving a "crisis of confidence", the chief economist of S&P Europe said on Monday.
"Let's not raise expectations too high, there will be more summits," the ratings agency's official Jean-Michel Six told a business conference in Tel Aviv. "Time is running out and action is needed on both sides of the equation, on the fiscal and monetary side."
The agency, which placed 15 euro zone countries on watch for a potential downgrade ahead of Friday's summit, wanted to send a strong signal that the countries were facing significant risk of a major recession next year and a credit crunch, Six said.
"There is probably yet another shock required before everyone in Europe reads from the same page, for instance a major German bank experiencing difficulties in the market," Six said. "Then there would be a recognition that everyone is on the same boat and even German institutions can be affected by this contagion."
Monday, November 28, 2011
Economic Outlook 2012
Euro Zone in Mild Recession, US May Follow: OECD
The global economic recovery is running out of steam, leaving the euro zone stuck in a mild recession and the United States at risk of following suit, the OECD said on Monday, sharply cutting its forecasts.
Andrew Unangst | Getty Images |
The threat of even more devastating downturns looms if the euro zone does not get to grips with its debt crisis and U.S. lawmakers fail to agree a spending-reduction plan, the Organization for Economic Cooperation and Development warned.
In the absence of decisive action from euro zone leaders, the European Central Bank (ECB) alone has the power to contain the bloc's crisis, the Paris-based OECD said. In the United States, however, the Federal Reserve had little ammunition left.
While solid growth in big emerging economies would provide a boost, slumping global trade would drag on Chinese output, the OECD said.
Its twice-yearly Economic Outlook forecast world growth would slow to 3.4 percent in 2012 from 3.8 percent this year.
That marks a sharp fall from its previous outlook in May, when the OECD estimated the world economy would grow 4.2 percent this year and 4.6 percent in 2012.
Struggling to contain an unprecedented debt crisis, the euro zone has already entered a recession and will eke out growth of only 0.2 percent in 2012, the OECD said, slashing its forecast from 2.0 percent in May.
Central Bankers To The Rescue?
The OECD said many key questions about the euro zone's response to the debt crisis remain unresolved, raising doubts about even the bloc's most solid economies, as demonstrated by Germany's difficulties placing bonds with investors last week.
"What we see now is contagion rising and hitting probably Germany as well," OECD chief economist Pier Carlo Padoan told Reuters in an interview.
"So the first thing, the absolute priority, is to stop that and in the immediate the only actor that can do that is the ECB," he added, urging the central bank to commit to a creating a cap on government bond yields as a way of calming the crisis.
With the Federal Reserve already flooding the financial system with liquidity, the U.S. central bank has even less room to act if the world's biggest economy hits a downturn. That prospect was made all the more real by the failure of Congress to agree a deficit-reduction plan, without which deep spending cuts would be triggered.
"The resulting fiscal tightening, which would come automatically, would in our view likely generate a recession in the United States," Padoan said.
Provided that the Congress does reach an agreement, then the U.S economy is set to grow 1.7 percent in 2011 and 2.0 percent in 2012, down from May forecasts of 2.6 percent and 3.1 percent respectively.
With world trade growth projected to slow to 4.8 percent in 2012 from 6.7 percent this year, even China would not be spared a sharp slowdown, the OECD said.
It forecast that growth in the emerging Asian economic power would slow to 8.5 percent in 2012 from 9.3 percent in 2011.
Slower global trade and confidence knocked by the euro zone's debt crisis could trip up Germany, which the OECD estimated would grow only 0.6 percent in 2012 after a 3.0 percent expansion in 2011. Europe's biggest economy has probably entered a shallow recession at the end of the year, the OECD said.
In a rare bright spot, the Japanese economy was seen rebounding sharply after this year's earthquake and tsunami to achieve growth of 2.0 percent in 2012 following a contraction of 0.3 percent in 2011.
Wednesday, November 9, 2011
The Who and Who in the European Debt Crisis
8. Mario Monti - new Italy Prime Minister since 16 Nov
9. Jose Manuel Barroso - EU President
10. Mervyn King - BoE Governor
The list will go on as add on new names.
Tuesday, November 1, 2011
MF Global
Gosh! Another episode of Lehman Brother collapse!
MF Global being a financial institution investing in financial derivatives has filed Chapter 11 Bankruptcy protection. Its exposure European soverign bonds turned bad due to 50% haircut agreed last week. However, fortunately, the size of the exposure is much smaller compared to Lehman case.
It is interesting to know who are the other investors that facing haircut issue.
Sunday, October 30, 2011
Market Toping
Good Article - Yeoh’s investment philosophy
TEFD: How did MalaysiaStreet.com come about?
Yeoh: From 1996 to 2000, I was the head of research at Merrill Lynch, Kuala Lumpur. After the Asian financial crisis from 1999-2000, we had the Internet boom in the US. Our US head office wanted to undertake a global research on the Internet to look at where each country is heading in terms of Internet development, how companies are using the Internet for business, commerce, innovation and so on.
I did research on Malaysian companies and was bitten by the bug. I interviewed companies like Jobstreet, Asiatravelmart and few others. Wong Yee Hui (former Merrill Lynch analyst and later Yeoh’s partner in MalaysiaStreet.com) came to me. At that time, access to research was not available to the man in the street. Unless you are an institutional investor, you won’t get quality research because the research reports were distributed in hard copies and were restricted. So, we thought of an idea to distribute reports via the Internet. There was a US company called the Street.com, so we wanted to do something similar here.
Unfortunately, MalaysiaStreet lasted less than a year. Well, it was actually one year, from the begining to the end, because it took us a long time to get the licence before the website started.
What happened after that?
After that, I joined CIMB. The unit I joined was then called Commerce Trust (predecessor to CIMB Principal), and the sister company was called Commerce Asset Fund Managers. One was in unit trusts, the other in fund management. I was running both. I was there for three years. Then, Datuk Nazir Razak wanted me to join what was going to become CIMB investment bank. The division I oversaw was then called CIMB private client services, comprising two units — private banking and retail broking. So all together I spent six years at CIMB.
Then I took one year off in mid-2007 to mid-2008 to spend time with the family and invest on my own before starting my own fund in KSC (Kumpulan Sentiasa Cemerlang).
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Yeoh: I look at the long-term tend of the company.
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Not my cup of tea, I want a freer hand to do things the way I want. Being part of a big institution means a lot of KPIs and administrative things. I rather stay focused on something much narrower, and one that I enjoy more, without being constrained by certain styles of doing things.
The way I manage funds now (in KSC) is very different from a big organisation.
A big organisation would try to do say, plus minus 5% in terms of market returns. Mine is much wider, I go as much as plus minus 20%. Of course we all want the positive side, not the negative side, but they say risk is symmetrical, so technically you are on both sides. I try to shift to the positive side, but the error zone is also greater, unlike that of the large funds.
Second, I also go into higher return markets, such as Indonesia and the Philippines, where my returns will be higher than in Malaysia.
Third, I structured my fund like a hedge fund, or what I call “skin in the game”, meaning my money is there. That’s what hedge funds do and you cannot have a better motivation with your money at stake. This aligns investors and the fund managers’ interests. I don’t just share the upside in terms of performance fees, I share the downside, too. There’s better risk management.
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This reflected well in the fund. Up till July this year, our third anniversary of the fund (end of third year), we have doubled the dollar. The fund size now is RM30 million. We started with less than RM15 million because it grew along the way. We look at per unit return/ NAV per unit, not the dollar return. The fund has corrected a bit, down 15% (till interview date). I go for regional markets for better returns and safer companies as opposed to companies where you take binary bets. The style seems to have worked.
The name of my fund is called Incrementum. In Latin it means growth fund, so it is a growth fund. The entry barrier for the fund is RM1 million and I have over a dozen investors.
Are you comfortable with your current fund size?
I am comfortable. There are a lot of advantages of making the fund size small. I can have bigger universe of stocks. It is easier to go in and out. I try to limit the stocks to 20-25. Every stock is meaningful to me.
Tell us how you pick stocks
Every stock has a pride of place in my portfolio because out of the six and seven markets I cover, to have picked them into the portfolio means there must be something very special about these companies. Special within a general context.
For example, I have not bought any Malaysian banks because they don’t offer the kind of growth potential that we see in Indonesia. They don’t offer that kind of valuation appeal. Most of the banks I bought are in Indonesia.
Sector-wise, I have bought banks and some property companies in Indonesia and Malaysia. But I have a lot of consumer companies. The best investment gained eight times in two years — PT Mayora Indah (a food stuff manufacturer in Indonesia that makes the “Kopiko” candy, among other things).
I go for certainty of earnings. I subscribe to this decision-making process called expected value. You want to optimise the combination of probability and returns.
For example, if I were to bet on one company getting a big contract, my return will be huge if the company gets the contract. But what is the probability of it getting the contract... I have no idea unless someone tells me somebody says so. Thus, if you look at the combination of probability and returns, it is not very high. Because returns can be high, but probability will be low.
Whereas you buy something like Mayora, the sales are growing 30% a year, and the probability of generating this return is very high because it is producing a recurring demand product. So a lot of what I do in terms of investing, whether timing investment, choosing a market to buy or choosing a stock to buy, I will try to optimise expected value.
So does that mean you don’t like companies depending on projects?
I do, but as an example, I compare IJM Corp and Gamuda. IJM has many projects, they secure projects constantly, so there is a reason for me to hold on to the company, because more and more projects will come in, and so there is more predictability in terms of earnings stream.
How long do you hold on to a stock?
The average is about one year. The shortest is six months and longest is holding since listing.
I do not do much trading. I look at the long-term trend of the company. If this is the price trend versus the earnings trend, even if I buy at a bit high price, it is forgiving because the earnings will catch up with it. The valuation will then look cheap again and then the price would perform.
That is why I like growth rather than value. For value, I cannot predict when a stock is cheap or expensive. I hope the earnings trend is there and I don’t buy too expensive, and I will get my payback. I would say my style is growth at a reasonable price or GRP. But it is growth first and value second. I don’t invest in any stock with market capitalisation of less than RM200 million.
The first assumption of liquidity to me is market cap. Not always true, but market cap is a cut-off figure. My portfolio may have a few less liquid stocks, but as a whole it is okay. Another thing I do is to attract like-minded investors. My investors are not traders, so I don’t worry about them coming in today, going out tomorrow. Also there is an exit clause. The first year exit fee is 2%, second year is 1%. After that none. So you discourage redemptions. I also don’t deal with distributors. Most of my investors are from the corporate sector, they know me for a long time.
Can you share with us some of your stock picks, and why you chose them?
I have investments in Malaysia, Singapore, the Philippines, Hong Kong, Indonesia. So far none in Thailand yet.
I have two stocks that Warren Buffet would call “perpetual holdings”. They are QL Resources Bhd and Bank CIMB Niaga. Why Bank CIMB Niaga? I think this bank has one of the most balanced growth strategies in Indonesia. Some Indonesian banks go all out for micro credit. Some banks go for certain segments and loan growth, Bank CIMB Niaga offers very balanced and broad-based growth. It is very particular about how it wants to use capital as well. I think it reflects the CIMB style.
In the case of QL, if you look at its track record, it is one of the best long-term growth companies in Malaysia. Compound return since listing is 20-plus percent. It gets tougher and tougher to maintain this growth because of its bigger size now. But what I like about the company is that its management is very forward looking. They think a few steps ahead — how do I generate the next leg of growth? And for the company, growth for the next few years will come from plantations in Indonesia. It has also gone to Indonesia and Vietnam for the fishing and poultry businesses as well.
In Malaysia, I have a stake in a small company called Vitrox Corp Bhd, which is into machine vision systems. It is probably one of the highest tech Malaysian-owned companies here. They do machine vision systems, which is part of the test process for chips inspection. They can inspect up to 40,000 chips per hour. This stock gets hardly any coverage. Liquidity is not so good, it took a while to buy.
In the Philippines, I have Metro Pacific Investments, a company that invests in infrastructure. It owns regulated assets — toll concessions, electricity distribution and water concessions in the Philippines. This company is owned by Indonesia’s Salim family, who also owns the Indofood group. This company is the best, in my mind, to build infrastructure for the Philippines along the model it has done.
In Indonesia, I own Alam Sutera, which is in property. It has done very well, share price has almost doubled. When you buy property stocks, the best time is when the selling price is appreciating. If your land cost is fixed and your building cost is more or less fixed, every single increase in the selling price is pure margin expansion. They have a lot of land near Jakarta and are mainly into landed property.
I also have Indomobil, a distributor of Nissan cars in Indonesia. We don’t have Astra, we were too late for it. Indomobil is a lot cheaper than Astra. Its market cap is one-tenth of Astra’s at the IPO price this year.
Malindo is an Indonesian chicken farming company owned by the Leong Hup group. Consumption of chicken in Indonesia is very low, 7kg per head per annum vs 37kg per head for Malaysia. As 90% of Indonesia’s population are Muslims, chicken and fish are the main sources of protein. There is a lot of upside for chicken consumption there. Chicken consumption is growing at 20%-30% per year over the last three years in Indonesia. QL saw the potential there and went in but was still very new. Malindo is among the top five.
I also have Modern Internasional, which obtained the franchise for 7-Eleven in Indonesia last year. We have seen how well the 7-Eleven franchise in Thailand has done, so again it will be a long-term growth story for Modern, which is starting at a very low base. This company has been around a long time; it used to distribute Fuji products.
In Singapore I have this company called Ezion, which is an offshore marine company in lift boats for oil and gas. The company designs the boat and gets people to manufacture and then charters out. Very good track record, very entrepreneurial management. But unfortunately, the sector has fallen out of favour, but its shares are very cheap.
In China, we have China Life. I think insurance in China is a long-term play, with growth potential and low penetration. However, the stock price has taken a big hit because people were worried about its stock market exposure. But actually the stock market exposure is small compared with the recurring earnings of the underwriting business.
Why China Life and not AIA?
AIA has a much less exposure to China and is more of a regional play. China Life is state-owned and has the biggest footprint in China. This is not a perpetual holding because I don’t know the management so well and also they are more SOE (state-owned enterprise) than entrepreneurial.
How do you keep finding new stock ideas?
I have to keep travelling to look for new stocks. It is good to get out of office and meet people. This is something that I enjoy doing a lot.
Monday, October 24, 2011
Dejavu - SP500
Outlook | |
Europe | Half dead |
US | Flattish at best |
China | Inflation, Property bubble, growing NPL, declining growth |
India | So far no bad news. But slow moving hard to be the prime mover |
Japan | Slow growth, earth quake |
DOW - One Month After 24 Sep 2011
The same chart was posted one month ago. Dow has since gained 12% from the last low. Despite the continuous debt woes in European region. European Union being made up of many nations is facing difficulty in arriving the collective decision on the best remedies for the debt laden European nations. The rich nation ie France and Germany are demanding the PIGS (Portugal, Ireland, Greece and Spain) to push through some auterity measures before agreeing with the rescue package. The austeriry measures include scaling back public spending and cutting pension. These measures were deeply unpopular has give rise to numerous occations that the Greek taken strike to the street.
Despite the unstable condition in the investing world, Dow managed to chalk up 12%. I think it is pretty impressive. The current state is showing an overbought indicated by RSI. A conclusive decesion is expected to emerge from EU to resolve the debt crisis in PIGS. If it is a bad news, market will be punctuated from here ie stock will go lower. If it is a good news, market will probably shoot a little bit more but not much! As the market has in the past one month priced in the optimism. Immediately after the short surge, a market respite will kick in. Hence the best action to do after the news due on Wednesday, 26 Sep 2011 will be no action except taking profit for those who bought early when bad news is announced. See the summary below.
Those already bought | Those have not bought | |
Good news | Hold on, as you may get higher price later | Wait for the market to retreat – currently overbought |
Bad news | Take profit | Hold on, as you may get lower price later |
Sunday, October 2, 2011
2013- The Judgement Day
As the dust settled, US Government intervened by bailed out the US credit market, the market started to calm down and the selling momentum also receded. Although the bad loans was absorbed by the Government, the US was facing high unemployment rate of 10% due to shrinkage of real economy. US being the most advanced financial market supported by the economy noble laureates, remedied it economy with a drug by the name of "Quantitative Easing" (QE). The QE is a monetary policy tool used by the Government to print money without underlying assets/security/collateral. The paper money printed is handed free to consumer hoping that it will spur consumer spending pulling the real economy out from negative territory.
The first round of QE began in March 2009 and concluded in March 2010. One of the primary goals was to increase the availability of credit in private markets to help revitalize mortgage lending and support the housing market. To accomplish this goal, the Fed purchased $1.25 trillion in mortgage-backed securities and $200 billion in federal agency debt (i.e., debt issued by Fannie Mae, Freddie Mac, and Ginnie Mae to fund the purchase of mortgage loans). To help lower interest rates in general (and thaw the frozen private
credit market), the Fed also purchased $300 billion in long-term Treasury securities.
The second round of QE, widely called QE2, began in November 2010 and is scheduled to conclude by the end of the second quarter of 2011. Its goal is to strengthen the economic recovery and combat a possible Japanese-style deflationary outcome. QE2 works toward both of these objectives by fostering economic growth through lower interest rates intended to spur consumer spending and business investment. During QE2, the Fed will purchase up to $600 billion in long-term Treasury securities.
It is really interesting to see Dow's directions for the last two year was highly correlated with the timing of QE. Dow has achieved a new high at 12,900 in April and corrected to 12,000 level just before QE2 ended in June 2011. With the anticipation of QE3, rallied again for one month followed by a blood shed sell down started in July 2011. The sell down mainly due to the European debt crisis.
Now it reached the climax of this article on how will the Dow move from here. The two major observations are as follows:
1. Timing
2. how severe will the sell down be?
1st bull run (1985 to 2000) last for 15 years.
2nd bull run (2003 to 2007) last for 4 1/2 years
3rd bull run (2009 to 2011 last for 2 years.
1st bear market (2000 to 2003) last for 3 years
2nd bear market (2007/8 to 2009) last for 1 1/2 years.
if the peak and through trend persist, the 3rd bear market shall be less than a less year, probably 9 months. Theoretically, the market should rebound in Q2 2012 provided QE3 will be implemented and European Debt Crisis is temporarily resolve. The short 9 months of sell down will also mean it will be most fast and furious down trend ever in US history. It is understandable as rally in 3rd bull run was built without real fundamental change in the US economy structure - unemployment remain high and net import remain high and the economy remain highly geared.
Should the Fed is unable to implement QE3, the second observation will be answered by itself. Should the market does not rally from the rebound at 8,000 level, it could spell the end of US economy super-power history in the last 30 years. It will also complete the long term H&S on the last leg down.
Sunday, September 25, 2011
Dow & FTSE is Extremely Bearish
Both European and American markets are extremely bearish! Chart wise, both charts have broken below the lower flag line. If European policy makers remained directionless and it can send the market tank and the down trend shall continue.
Saturday, September 24, 2011
What if MYR weaken further?
As i cannot attached a pdf file here, please find it over the net.
Tuesday, September 20, 2011
Market Topping - Update
KLCI uptrend rally begun in early 2008 and peak in July 2011, a good and fabulous 2 1/2 years bull run. This bull run has led to USD depreciated 20% against Ringgit. Well, i think the correct way to describe the scenario should be, foreign funds that aggressively bought up Ringgit to participate in local equity market has continuously pushed up KLCI to a new height adding about > 60% appreciation.
Now the USD appreciation has accelerated with a quick spike. So the next question is whether this spike is temporary or permanent. I will discuss this in the next posting.
Asian Market Topping Out
Have a look at the long term channel form over selected Asian Markets. There are data for 15 years and 25 years. These charts look extremely bearish. The down trend reversal has started and should continue for many months to come. Save our bullet now, revisi the market in 6 months time. Let see how low shall the market go.